Stephen Bainbridge's Journal of Law, Politics, and Culture

11/16/2012

Twinkies will be back

Doug Mataconis argues that The Free Market Killed Hostess, And That’s A Good Thing. In the course of doing so, he takes issue with "a definite theme on the right blaming the Baker’s Union for the company’s collapse since they would not agree to a modification of their contract notwithstanding the fact that they had been warned that this would happen, and that even the Teamsters Union warned them that they were risking the fate of the company and everyone’s jobs by being so stubborn."

In contrast, I think that theme's basically right. To be sure, as Doug points out, Hostess had a lot of other problems, including serious management errors. But even Doug ultimately has to admit that "the failure of the union to agree to these concessions was ... the proximate cause of today’s decision." Creative destruction may be the driving force of capitalism, but it was union intransigence that was the straw that broke Hostess' back.

Havong said that, I agree with Doug that the people whining about the Twinkie going to way of thedodo fail to understand what's going to happen:

Starting off with what happens to everyone’s favorite brands, the idea that they are simply going to disappear is absurd. Outside of the companies physical assets — the remaining bakeries, its distribution network, and the network of retail outlets that it operates — these brands are among the companies most valuable assets. Already there has been speculation among business writers about who might be interested in buying up at least some of these brands and their related assets, and one writer at Forbes notes the existence of a Mexican bakery conglomerate called Groupo Bimbo that tried to buy Hostess the first time it was in Chapter 11 and might be interested in doing so again. Obviously, the more popular a particular Hostess brand is, the more likely it is that it will survive, but the idea the entire company is simply going to disappear betrays a fundamental misunderstanding of what Chapter 11 liquidation is all about.

The purpose of liquidation is to sell the companies assets, either all at once or in pieces, for the highest possible value in order to pay the company’s debts and satisfy its obligations as much as possible. Every sale of assets that occurs has to be approved by a Bankruptcy Court Judge after proper notice of the same has been given to all interested parties. Hostess was a company in serious financial trouble, but it still possessed considerable assets, most notably in its brands, and it’s inconceivable that a Court is going to let those assets simply go away for pennies on the dollar. Now, of course, it may well turn out that few companies will be interested in all of Hostess’s brands and intellectual property, but at least the most popular ones are likely to survive. So, no, it’s probably not the case that your Twinkies are gone forever.

Comments

Twinkies will be back

Doug Mataconis argues that The Free Market Killed Hostess, And That’s A Good Thing. In the course of doing so, he takes issue with "a definite theme on the right blaming the Baker’s Union for the company’s collapse since they would not agree to a modification of their contract notwithstanding the fact that they had been warned that this would happen, and that even the Teamsters Union warned them that they were risking the fate of the company and everyone’s jobs by being so stubborn."

In contrast, I think that theme's basically right. To be sure, as Doug points out, Hostess had a lot of other problems, including serious management errors. But even Doug ultimately has to admit that "the failure of the union to agree to these concessions was ... the proximate cause of today’s decision." Creative destruction may be the driving force of capitalism, but it was union intransigence that was the straw that broke Hostess' back.

Havong said that, I agree with Doug that the people whining about the Twinkie going to way of thedodo fail to understand what's going to happen:

Starting off with what happens to everyone’s favorite brands, the idea that they are simply going to disappear is absurd. Outside of the companies physical assets — the remaining bakeries, its distribution network, and the network of retail outlets that it operates — these brands are among the companies most valuable assets. Already there has been speculation among business writers about who might be interested in buying up at least some of these brands and their related assets, and one writer at Forbes notes the existence of a Mexican bakery conglomerate called Groupo Bimbo that tried to buy Hostess the first time it was in Chapter 11 and might be interested in doing so again. Obviously, the more popular a particular Hostess brand is, the more likely it is that it will survive, but the idea the entire company is simply going to disappear betrays a fundamental misunderstanding of what Chapter 11 liquidation is all about.

The purpose of liquidation is to sell the companies assets, either all at once or in pieces, for the highest possible value in order to pay the company’s debts and satisfy its obligations as much as possible. Every sale of assets that occurs has to be approved by a Bankruptcy Court Judge after proper notice of the same has been given to all interested parties. Hostess was a company in serious financial trouble, but it still possessed considerable assets, most notably in its brands, and it’s inconceivable that a Court is going to let those assets simply go away for pennies on the dollar. Now, of course, it may well turn out that few companies will be interested in all of Hostess’s brands and intellectual property, but at least the most popular ones are likely to survive. So, no, it’s probably not the case that your Twinkies are gone forever.